It has been said, with regard to the stock market, that Wall Street traders know the price of everything and the value of nothing. As I watch the price of e-books fall through the floor, I begin to wonder whether the traders have company.

First, a caveat: Compared to your average economist, what I know about consumer pricing you could fit in a thimble. For example, I don’t deeply comprehend the Paradox of Water and Diamonds, in which that thing most essential to our existence is almost free (except if you get if from Fiji), while nearly useless little rocks have enormous value. I do understand it has something to do with relative scarcity.

And maybe this is one problem we have with words and stories. They may be indispensable, but we currently have too many words chasing too few dollars. Of course, the quality of those words is another matter, but I’ll get to that.

In April, GalleyCat reported that certain customers of Amazon had instituted a boycott of all e-books priced over $9.99. It quoted an Amazon “reader” (perhaps “customer” would have been a better word) explaining the outrage thus: “Kindle books are kinda like movie tickets. While you can re-read the book, you cannot: donate it to a library, sell it to a used book store, sell it on Amazon’s Used Marketplace, [or] trade it to a friend … The publisher does not need to pay for paper, glue, press time, press employees, insurance, ink, boxes, or shipping. Amazon does not need to stock its warehouse, pay staff to fulfill orders, or pay shipping. The price needs to reflect these VERY important facts.”

I don’t know whether $9.99 should be the sweet spot for e-book pricing, but the above argument is notable for who and what it leaves out. The “who” it leaves out is the author, of course, the creator of the work. The “what” it leaves out is the experience of reading.

Before I argue (as I’m about to do) that pricing e-books so low as to bankrupt publishers or to deny authors a living wage is not only stupid, it is practically immoral, let us stipulate a few things about pricing.

The first thing to remember is that pricing may be a reflection of the producer’s costs in the beginning, but over time the cost of production is nearly irrelevant.

Second, the primary reason for this is that price is really set by consumers, who decide in aggregate what the market will bear. If it costs me a thousand dollars to produce a gold cup, that doesn’t mean someone is willing to pay that. Which is why there are many more (and cheaper) paper cups than gold ones on the market today.

Third, the utility of an item for the consumer may be appreciably disconnected from the ingredients it contains. If I were an economist, I might call this the Paradox of Cheese. When was the last time you saw the price on a wheel of brie and declared: “Thirty-five dollars? But that only contains fifty cents worth of milk!”

Fourth, if consumers confuse the package for what’s inside when establishing value, this can work to your advantage (if you’re a smart marketer) and to your disadvantage (if you should’ve taken that job teaching freshman English and spared the world your business skills). Guess which outcome the publishing industry has allowed to happen.

This leads me to a story that a non-publishing friend shared recently. A woman comes to Pablo Picasso and asks if he’d be willing to paint her portrait. “Of course,” the painter says. “Sit down.”

She sits and he sketches for awhile. Then he hands her the paper and says, “Here you are. That will be one million dollars.”

“A million dollars!” she protests. “But that only took you twenty minutes.”

“Madam,” Picasso explains, “that picture took me a lifetime.”

In this story, Pablo Picasso understood more about establishing value than all of us knucklehead authors put together.

The cost of producing an incremental copy of an e-book is practically zero. So what? This number is relevant when an author negotiates with his publisher about the division of proceeds and only then. For everyone else, the real value of an e-book lies in the experience of reading it. If it’s non-fiction, the words inside might provide insights that will improve that reader’s life in a thousand small ways. In the case of a novel, it might change that reader’s worldview completely. What’s that worth to you?

For the sake of people, like the Amazonian quoted above, who pass through the world under green eyeshades, permit me to note the following: even if you gave five stars both to the movie you just saw and the book you just completed, at $9.99 (or $12.99 or $29.99!) the book was the much better deal. The movie gave you two hours of entertainment; the book at least ten times that for a comparable price.

Now, it’s true that price can sometimes communicate quality. I recently bought a bestselling e-book for $2.95. It was written by a hack and had no redeeming value, not even good entertainment. I assure you, I was overcharged. Consider the free e-books on the Amazon bestseller list. If your time is worth anything to you, I am willing to bet that in most cases upon reading them you will have paid too great a price.

But authors and publishers don’t get to decide that, not entirely. I said above that price is set ultimately by what the consumer perceives as value, by what the market will bear. This is exactly why the Association of American Publishers and every writers’ organization and all similar industry groups should stop whatever they’re doing and devote all their resources to one purpose: establishing the value proposition of an e-book at any price in the minds of consumers.

The value of the cheese does not derive from the milk. Neither the cost of producing an e-book nor its package has anything to do with the experience that book will deliver to readers. The sooner publishers and authors establish this proposition in the marketplace, the better off we all will be.

Last week: Publishing Primacy — Folio 17: Five Lessons from ThrillerFest

Next week: Publishing Primacy — Folio 19: The Trouble with Free

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J.E. Fishman, a former Big Six book editor and former literary agent, is author of the thriller Primacy, which Publishers Weekly called "appealing" and Kirkus called "good, boisterous fun." His mystery novel, Cadaver Blues, was serialized in 2010 on TNB and you can still find it here if you dig deep enough. It's now available in ebook and paperback. His financial thriller, The Dark Pool, was published this year, and his new series of police thrillers, Bomb Squad NYC, will be published in February 2014. He blogs here and at the Huffington Post. Please visit and follow him at his very fancy and expensive official author website.

9 responses to “Publishing Primacy — Folio 18: The Value of Nothing”

  1. dwoz says:

    What you’re arguing here has to do with the “residual value” of a good. A car, for instance. A new car has the notorious quality of losing a very significant portion of it’s value the minute you sign the papers and drive it off the lot.

    The car’s value is actually a bundle of values. The first and most important, is the immediate utility value of it. Second to that, is the value that you can recover from it by selling it down the line to someone else, or ultimately it’s value as junk/scrap metal.

    Also, with a book, (and to some extent a car) there’s two components to the value…the intellectual property(IP) component (i.e. the writing, or the design) and the physical object value.

    Because of something called the “Doctrine of First Sale,” the initial purchase of the book is all the money that the publisher/car manufacturer ever sees.

    Book pricing has always therefore included a bit of a premium that captures back some of that “residual value” to the publisher, for the IP portion of the value. In general, this kind of claw-back of value, in the form of a price premium, only really happens in products that embody a lot of IP, and that can be re-sold/distributed down the line. So when you buy, for example, a mattress…there’s not a lot of IP there, and there’s not a lot of people who will buy your used mattress, thus there’s very little in the way of “residual value.”

    The only publishing people you’ll ever hear talking about this, are the textbook publishers.

    So, that’s what the “books should be free” people are complaining about. They believe that the residual value doesn’t exist.

    However, it DOES exist. While the consumer that wants to pass down her copy of a digital file will not be able to get any residual value from it, the redistribution that does occur represents a diminishing of additional sales for the publisher, exactly the way a vibrant used book market would. Thus the argument FOR a claw-back or premium price above the raw cost to manufacture. Of course, the first consumer has been led to consider this a hidden tax on them for other’s bad behavior, so they don’t see it the same way.

    …and we thought this was all about making nice prose.

    • J.E. Fishman says:

      I appreciate this analysis, Dwoz, but as far as I’m concerned, you (and many others) are arguing on the wrong territory. If people bought a car for its high residual value, then everyone would be driving a Mini Cooper. If they bought cars only for transportation, they would buy the cheapest ride that takes them from A to B. Most don’t. Many people choose a car based upon emotional appeal. Similarly, I would argue, people often purchase books because of a certain kind of inarticulable appeal — they just like this or that author, this or that genre.

      Reducing this argument to the cost of manufacture borders on philistinism, in my opinion. But even if we do that, where does the “manufacture” of story come into your equation? Ignoring that component is like pricing a car without figuring the corporate overhead (which includes the design department). Except that in this case the author’s creative invention is the majority of a book’s value.

      I could go on, but I’m being called to the beach!

      • dwoz says:

        Don’t misunderinterpretize me here, J…

        I’m not actually suggesting that residual value is a purchase motivator, or even something that most manufacturers specifically consider or even think about.

        It’s of course far more “loosey-goosey” than that. empirically, one understands that something with a significant resale value (i.e. close to what you paid for it or more than the price of a coffee. ) often sells at a premium on initial retail.

        I just point it out as being the basis of the “why are eBooks so outrageously expensive” crowd’s argument. I don’t at the same time advocate that position, no, far from it.

  2. Paul Clayton says:

    Joel, another great post on a subject near and dear to my heart. Getting that price right is part green eye shade savvy and part magic. I think there is a sweet spot for every kind of ebook.

    “… price needs to reflect these VERY important facts (low overhead, no paper, shipping, etc.)…”

    Well, this price slide to the bottom, it’s gonna get worse. All those discounted titles that used to fill up the tables at Borders are going to show up in ebook form, heavily discounted. Right now Amazon is running ‘The Big Deal’ sale of discounted books, something that so-called Indies like myself, are not happy with. Competing with the big 6 on price was one of the best weapons we had in this war. And they’re whittling that away, with Amazon’s help. Another thing, imagine, books no longer gets old, that is, their covers will not get nicked or dog eared on that virtual Discount Table, but will remain shiny and new forever. And these books will take up acres of virtual shelf space, pushing mine and others’ work aside.

    (…pricing e-books so low as to bankrupt publishers or to deny authors a living wage…)

    I’ve been thinking about this a lot lately (about the authors part, not the publishers) What I’ve begun doing, and what I think will become the model (for so-called Indies like myself) will be to price the best-sellers (usually genre) the lowest, at, say, $2.99, or $3.99, and price the slower sellers (usually mainstream or literary) at a higher rate, usually $5.99 or $6.99, so that those fifteen or twenty sales a month will put some change in your pockets (twenty sales a month of one book priced at $6.99, under Amazon’s 70% royalty will net you about $70.00. Not exactly a living wage, but if you have five or ten of those for sale…could be a Porsche payment. Hmmm.

    One other point about price. Yes, there should be a standard, an average, and it should provide enough financial incentive for smart, talented people to continue to write. I think that threshold will be low, and the only way to really earn a living at it will be to be awesomely prolific. We are entering the age (actually, going back to it) of the pulp book (this has already been blogged about quite a bit, although I thought of the analogy first 😉 — glossy covers, cheap to produce, and providing entry and training to a new generation of writers. Among the throng will be millions of ‘hobby writers’ with one book and now the new title, ‘Author,’ thousands of mid-list writers bailing out of the burning, shot-up hulks of crashing publishers, the MFA program writers who will decide that selling five copies a month is better than waiting twenty years to sell, if they’re lucky, 500 to 5,000, me, (your name here), and some others.

    I love the Picasso story. Yeah, it only took him twenty minutes to sketch that, but a lifetime to learn how to, that is, how to sketch it ‘like Picasso.’ And this leads to another wrinkle. There are a lot of folks now publishing direct to ebook, or simultaneously with print versions, who are seasoned writers, writers who’ve learned control over the years, slow hands who don’t usually succumb to premature epublication. And then there are some others (and I don’t know how many there are out there as I don’t have the weeks and months of leisure time it would take to sample even a fraction of what’s being Indie e-published these days) who write in a hurry and bang… upload their brilliance, and leave everybody else with a bad stigma to overcome.

    Anyway, again, good piece, and I can’t wait to see Primacy hit the stores And the virtual bookstores!

    • J.E. Fishman says:

      Hey, Paul. Sorry just to have caught these comments of yours. Vacation, spam folder, yada yada.

      There’s a lot here and all of it good. To re-emphasize a couple of points…

      1) Yes, I do fear the slide to the bottom on price will continue. Yet it could be that — as with many goods — price will become a factor in distinguishing better writers from hacks. Then again, maybe I’m just whistling past the graveyard on that one.

      2) What I would add to your bit about pricing to the genre is that some publishers (independent and small) are pricing based upon sales position. If you’re lucky enough to get onto a bestseller list, say, they drop the price to drive you toward the top of the list. When the book gets there, they raise the price until the book begins to drop. Then they lower the price again. Etc. It’s like the airlines with seats. Dynamic pricing. This could be very empowering or it could end in a train wreck. Who knows.

      3) To add one thing about the shelf-space issue, it’s possible that we’re seeing a bubble of excess supply move through the system…lots of people with one or two bad novels sitting in drawers who say, “Screw it,” may as well put them out into the light of day. But many of these writers perhaps don’t have any more novels in them. It will be interesting to see.

      4) I completely agree about the new pulp and I’m not one to condemn pulp when it’s well executed. The better pulp writers may eventually rise to the top and have more pricing power (or, at least, more posterity). But, in any case, anyone wanting to make a living at this game will have to produce.

      Gee, now that I said that, I’d better get back to work on the next novel!

  3. I think I am one of those who published prematurely in pulp fiction. Right now I am learning to respect the work process and also learning to get over my shyness in trying to ask people for their opinion on the foreign language aspects of my first book.

    Thanks for the current information on value of a novel whether e-book or pulp book. Will keep reading your report and learn from my mistakes!

  4. […] Last week: Publishing Primacy — Folio 18: The Value of Nothing […]

  5. Anonymous Author says:

    To play the devil’s advocate:

    The real cost of a printed book has already been determined by the publisher when it prices the printed format – paperback, trade, or hardback. The IP part of that price is the same, no matter what format. When that same IP is printed electronically, with no real difference in cost between 1 copy and one million, the customer has every right to expect the price of that copy to reflect the difference in production value, since he has been trained to pay 3-4 times more for hardbacks than pocket paperbacks.

    As the publisher receives roughly 40% of the cover price from the distributor, an ebook shouldn’t cost more than 40% of the printed copy cover price. If a publisher sells a $15 book to a distributor for $6, then the publisher should be happy selling the same ebook for $6. Keep in mind there is no 20% return reserve deduction from author royalties for ebooks. If you transfered the value of the decreased cost of production to the author in the former of a higher royalty, everyone would still be making the same amount of money for a $6 ebook as they would a $15 trade paperback – everyone except the distributor and bookstore owner, that is.

  6. Akkuschrauber Makita…

    The Nervous Breakdown…

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